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If you find investment a worthwhile goal of life, start soon and start with basics.  IRA, an saving account, loaded with tax incentives, is the best way to get a head start.  I will use a story below to illustrate how it help you to go a long way.

Humble Beginning

You start with budgeting in order to squeeze some bucks out of your daily expenses to set up reserve for emergencies.  Your next step is to put the extra fund into a saving account and hope it can grow big.  In college math class, you learn that over time the compounding interest will accelerate the growth of your principal. 

You decide to use IRA to set out on your mission.  IRA is not your typical saving account.  You know that your enemy number one is tax, and the partner in crime is your own impulse spending.  An IRA protects your from both Uncle Sam and yourself.  This will give the big boost you need.

Early Achievement

After a while, you are bored with the bank interest.  You are tempted to go to the next level.  You are amazed by the investment opportunities out there, so you branch out to a brokerage IRA.  You are overwhelmed my the assortment of  “flavors” in the funds, and decide to play safe for now by focusing on fixed income funds.  That gives you a better rate of return than the bank.  From time to time, you explore out of your comfort zone, and get into the growth equity funds or emerging market funds for the roller coaster rides.

Well, nice and neat.  After a short while, you have a good chunk of wealth sitting in the IRA.  You have achieve something in your investment journey.

Family Man

You also come to a different stage in your life because you now have a young family, so it is time for a homestead.  You consider buying a home as a solid investment.  A home saves your rent payments, builds equity, and gives you tax write-off on mortgages interests.  You tab into your IRA and take a good amount of it to help you on the down payment.  This is totally kosher with IRS.

Your children are growing fast.  Before you know it, they are in colleges.  From time to time, you are tempted to use some of the IRA money to pay for the tuitions whenever your cash is tight.  You know well that is legit too. 

Job Hopper and 401(k)

In the meantime, your career is going well.  You start investing in 401(k) plan because the company matching is irresistible.  By simply contributing into the account, both tax saving and company matching give you an instant decent return.  As life goes on, as most of us, you often change jobs for better opportunities.  In between the jobs, you roll the 401(k) into your IRA.

Now after you are getting a new taste for real estate investment, you want to get more of it, but it usually is a big game and takes big money.  Nevertheless, you manage to get a piece of the action by buying share of REITI from your IRA.

Switching Gear

As you are making more and more from the jobs and investments, the traditional IRA is no longer catching up with you because you can not deduct the contributions anymore, so you advance yourself into Roth IRA.  With retirement in sight, Roth IRA gives you more freedom because it does not force you to take money out by the time of retirement and the money are permanently free of tax.

The Last Frontier

Now your IRA has considerable amount of cash and other usual securities.  You are increasingly concerned about losing value due to bad economy and risk of inflation.  You want to diversify the assets in IRA into something more solid.  One of your buddies just tell you about self-directed IRA.  You investigate and decide that you can handle it.  You find a specialized firm which charge reasonable fees.  They help you set up such special account by meeting all IRS rules. 

Finally, you borrow and buy a new investment property under this account, enjoying the great return as well as the great tax benefit.  You are now a master of personal finance.

The story shows you how useful an IRA is for different stages of your life.  I need to end this illustration with a warning: self-directed IRA is not for everyone.  You can check out the post here in Mostly Fool to find out why.  You may also check out the blog from a veteran in such business.